Mortgage Tips
When buying a home for the first time, a mortgage can seem like a daunting thing that you don't understand. Here is some basic mortgage terminology that you need to know in order to make an informed decision.
- Term - A mortgage term is the length of time you
have to pay off your loan. It could be anywhere from 10
years to 30 years. Like any loan, the longer you have to
pay off your mortgage, the lower the payments will be.
An important mortgage tip - in some cases, the shorter
the term, the lower the interest rate.
- Rate - The "rate" is the interest rate, which
basically defines how much you will be paying the bank
to borrow money from them. The interest rate offered to
you is dependent on your credit rating, how much money
you are able to put down, how much money you make and
the value of the home you're buying. Rates can also
change depending on the loan program.
- Cost - Costs typically refer to closing costs, which are a part of every mortgage. You may see offers for "No Closing Costs" but these programs are rare. If you get a no closing cost loan, it usually means the mortgage company is making a large enough commission on your loan to cover the closing costs for you. Closing costs usually include an appraisal, recording fees on documents at the registry or deeds, attorney or notary fees and the like. Watch carefully for junk fees!
Choosing a Mortgage Term
The term of your mortgage is an important factor to consider
when choosing your mortgage program. Obviously, the longer
the term, the lower the payments - but low payments aren't
on every person's mind. In fact, some people prefer to make
larger payments towards their home loan because it will be
paid off more quickly and because they are putting their
money into an appreciating asset. Additionally, if you plan
to rent or lease your property or a unit in your property,
you'll make more money the faster you pay down your
mortgage. The moral of the story is that larger payments are
better as long as you can afford them. This doesn't mean you
can't get a 30 year fixed mortgage and just be disciplined
enough to make an extra payment or two throughout the year,
but it does mean that the more money you put into your home,
the better off you'll be.
Advantages to Using Mortgage Brokers
Finding the right home may seem like the hard part of a real
estate transaction, but in reality, getting the best
financing can be much harder. This is partially because we
have so many options nowadays for mortgage loans and so many
places to find them. A mortgage broker or your local bank
can often lay out your options clearly. They will be armed
with what you want in terms of loan term, ideal rate,
targeted monthly payments and the like. If you're smart, you
talk to them before you decide on your home so you really
know your price range. Once you have your options from your
local folks, go online and shop around. Some mortgage
websites have so many lender partnerships that they are
bound to find you a cheaper rate, shorter term or more
competitive option - they just have greater resources! Don't
feel bad either - this is your financial future and if your
local folks can't offer the best mortgage options - that's
life.
Adjustable Mortgages – Risk vs. Reward
Why do people take out ARM loans anyway? An ARM is an
Adjustable Rate Mortgage and these can suit many people
perfectly. The idea is that you have a term where your
interest rate is fixed. This term can be as short as one
month and as high as ten years. ARM loans are ideal for
starter homes or condos, where you plan only to stay for
3-10 years and then you plan to sell. They can also be great
for getting into the home of your dreams with a slightly
lower payment. The risk is that when you refinance your
mortgage, the interest rates may be higher, so although you
are getting a great deal in the short term, your long term
interests are not as clear. If you are in the financial
industry and you follow interest rates, an adjustable
mortgage is probably a great plan. The key is knowing when
to refinance into a fixed rate mortgage to protect your long
term property interests.
Paying Off Your Mortgage Loan Early
When you buy your first home and you see that 30 year term,
it seems like you'll be paying for your home forever. There
are ways to shorten your mortgage term without refinancing.
- Pay a little extra every month towards your
principal. You can usually add a dollar amount that
specifically goes towards that and even if you can only
afford $20.00, send it in. That is an extra $240.00
towards your principal each year.
- Make one extra full payment a year. By doing this
simple thing, you reduce your loan term by YEARS.
- Don't spend money on frivolities. If you have extra cash on hand, invest it in your equity or in home improvements - especially the kitchen and bathrooms which will increase your home's value.
Prepayment Penalties on Adjustable Rate Mortgages
No matter which mortgage you choose, make sure you ask
about prepayment. If you want to refinance down the road,
you don't want the obstacle of a prepayment penalty to get
in your way. Prepayment penalties are not the norm - they
are usually associated with higher risk loans with higher
interest rates. Basically, if you decide to pay off the
loan, they will demand an amount of money as a penalty. This
can be a fixed amount or a percentage of your loan. No
matter which program your mortgage broker or mortgage
website is suggesting, ask about prepayment penalties before
you sign. This can mean thousands of dollars in savings down
the line.
Funding the Costs of Your Reverse Mortgage
Many older people are taking advantage of reverse mortgages
to help with living expenses. If your house is paid for,
this may be a viable option for you. A reverse mortgage
means you are taking a monthly draw from the equity in your
home. It can mean the difference between being able to stay
in your home as you get older, or having to sell it and move
someplace else. A great mortgage tip - ask that your closing
costs be paid out of your loan proceeds. This means you can
secure a reverse mortgage for no out of pocket costs.
Choosing an Interest Only Mortgage Option
If you are looking to make a significantly lower payment for
the first several years of your mortgage, an interest only
mortgage may be the right program for you. The program is
just as it sounds. You will be making payments only on the
accruing interest of your home. You don't have to make
payments towards your principal, which is why the payments
stay so low. If you're smart, you won't use this program as
an opportunity to buy a lot more house than you can afford.
Calculate the affordability of the home according to making
payments towards both the interest and the principal so that
when the loan requires those payments, you are prepared.
Don't be put off by this though - an interest only mortgage
program can be great for select home buyers so talk to your
mortgage broker about the option.
Choosing a Mortgage Broker
Today, finding a mortgage broker is easier than ever.
Because of the internet, you are no longer forced to use
local mortgage brokers - you can find great mortgage brokers
and lenders on the internet that can offer better programs
for better rates than ever. The key to choosing a mortgage
broker is comfort. Are you comfortable with the person? Do
they make you feel confident that they are guiding you to
the right mortgage option? Remember, this is not a
popularity contest. People often make buying decisions based
on whether they like the person with whom they are dealing.
Let that go and play the numbers game with your mortgage.
The Fastest Way to Obtain a Mortgage Loan
Getting a mortgage online has never been easier and offers
many benefits. Online mortgage brokers usually have access
to more lenders and programs and they can turn things around
quickly. Because credit checks, loan applications and income
verification have been automated so thoroughly, an online
mortgage company can help you if you have a short closing
date or need a fast refinance. Start with the major search
engines when you want to find mortgage broker options.
Better yet, try to find online reviews or get a referral.
Make sure the site you choose has the Better Business Bureau
seal and all of the information security precautions
possible.
Things to Know About Your Adjustable Rate Mortgage
When you choose an ARM loan, make sure you know some of the
following facts, so that you are prepared when your fixed
rate term ends.
- When will your rate adjust the first time, and by
how much? This could be any term from 1 month to 7
years, so make sure you know the date and you are
prepared for the adjustment.
- Be aware that the rate of your ARM will not shift
only once. It's likely to shift regularly according to
any changes in interest rates. Your rate can be
determined by the US Treasury or the LIBOR index, do
familiarize yourself with the right index and follow
interest rates so you are well educated.
- Be aware of your refinancing options. ARM loans can be great to start off in a home or condo, but you can easily refinance to a fixed rate loan. The key is to get a great interest rate on your fixed loan, so watch rates, keep in contact with your mortgage broker and make the move before you get into trouble with your ARM loan.
Getting a 'Flexible' Interest Only Mortgage
Interest only mortgage loans can be a smart option for you
if you are self disciplined. They offer a flexible payment
schedule where you are only required to make a payment
towards the interest of your loan, but you also have the
option to pay toward the principal. In most cases, your
interest only mortgage coupon will even lay out
pre-calculated options for payments towards principal. If
you have an interest only loan, make it work for you - be
disciplined and pay off as much as you can.
By all means, take advantage of the payment flexibility when you need to, but put money towards your equity whenever possible.
